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Charlie Munger's 'Wait And Watch' Strategy May Work For Long Term Investors Amid COVID-19

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Charlie Munger, the vice-chairman of Berkshire Hathway, the investment company controlled by billionaire Warren Buffet, is not looking at making investments amid the COVID-19 crisis.

In a recent telephonic interview with the Wall Street Journal, Munger was asked if his investment company will it make big purchases in the current scenario, where assets are cheap, like they did during the financial crisis of 2008-09. He replied saying that in the present scenario his company is "like the captain of a ship when the worst typhoon that's ever happened comes," and that they would now wait and "rather come out of it with a whole lot of liquidity."

Berkshire Hathway has one of the largest cash holdings of about $ 128 billion (over Rs 10 lakh crore).

Charlie Munger's 'Wait And Watch' Strategy For Long Term Investors Amid COVID-19
 

Munger further said that Warren Buffet wants to keep Berkshire safe for its investors and would prefer to be "fairly conservative" at the moment to come out of the coronavirus crisis "very strong."

The 96-year ace investor for obvious reasons has a keen knowledge of the economy and business activities. However, when Wall Street Journal asked Munger how long in his opinion will the downturn last or how bad could it get, he said, "This thing is different. Everybody talks as if they know what's going to happen, and nobody knows what's going to happen."

Speaking of the stock markets, Munger said: "I don't have the faintest idea whether the stock market is going to go lower than the old lows or whether it's not." Acknowledging that the crisis will also hurt Berkshire Hathway's businesses as well, he said that the COVID-19 induced shutdown is "something we have to live through," letting the chips fall where they may. "What else can you do?"

Takeaways from the interview

The interview does give some valuable insights into the mind of a successful investor who Buffet calls as his business partner.

Maintain sufficient cash

Liquidity in the form of cash (that is in bank deposits and not being invested or spent) to suffice expenses for a good number of months is key.

 

We do not know how long the COVID-19 situation will last. There has been no vaccine or definitive cure found and even if it were to happen in the coming months, the measures taken to curb the spread (like lockdown and movement restrictions) have already caused severe economic damage.

While Munger may have been referring to the US economy, India will also be significantly affected. Amid an already slowing economy, the COVID-19 has only piled on to concerns of businesses, especially small ones and those with large debts.

With no light at the end of the tunnel, our future is unsure. You need to be prepared for situations like loss of employment, change of career or even a medical emergency with liquid assets.

You may want to increase your emergency savings.

Do not go on a spending or investment spree

Many stocks have been attractively priced and rating agencies are recommending "buy" option on these.

Munger is famously known to have advised buying when there are bargains and do nothing the vast majority of time to see wealth grow. If you are long term investor, this strategy holds true but the current situation is highly uncertain.

Experts like the IMF and rating agencies that purely work on studying and analysing economic data have been making lower and lower GDP projections every 15 days.

There are chances that the stock markets may fall further or it may make a V-shaped turn once lockdown ends. Nothing is certain as markets are known for their unpredictability.

If you wish to make a bet, you may want to keep it on the down-low and not start selling what you hold or buy aggressively to "average" the losses made. Patience is a virtue.

Story first published: Tuesday, April 28, 2020, 16:54 [IST]
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